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# Jennifer expects to start college in five years.

Jennifer expects to start college in five years. The school she wants to go to will cost \$18,000 per year for the four years (assume payments at end of each year). Her parents started saving \$3,000 per year five years ago and will continue to do so for five more years.

How much more will her parents have to invest each year for the next five years to have the funds required for Jennifer's education? Use 7% as the interest rate throughout the problem.

When you set up this problem, please write the formulas (such as PV = A * PVIF), rearrange each formula so that the unknown factor is on the left side of the equal sign, plug in the numbers, and then solve. If you follow this procedure, you will dramatically reduce the probability of making errors

#### Solution Preview

The PV of school fees = 18000*PVIF(7%,6th year) +18000*PVIF(7%,7th year) = 18000*PVIF(7%,8th year)+ 18000*PVIF(7%,9th year)
=18000*(0.6663+0.6228+0.582+0.5439)
=\$43,470

The PV of \$3000 annuity started 5 years ago ...

#### Solution Summary

The solution examines when Jennifer expects to start college in five years.

\$2.19